CFTC Chair talks to commercial hedgers

Below is the text of a speech CFTC Chairman Timothy Massad delivered to the Commodities Markets Counsel on Feb.1

Thank you so much, Charlie for that warm introduction.

I’m particularly pleased to be here today. For those of you who live on the east coast, I know you are pleased to be here as well. Last week, Washington was hit with one of the worst blizzards in its history. We’re all still digging out, and so it’s nice to be near a beach where you can shovel sand, rather than be at home shoveling snow.

I always enjoy meeting with commercial end-users of the derivatives markets. Most Americans don’t participate in these markets. And as a result, these markets, and the work of the CFTC, is not always well understood.

But you understand the importance of these markets – which help companies such as yours manage routine commercial risk.

You understand that the derivatives markets impact the lives of almost every American – by shaping the prices we all pay for food, energy, and many other goods and services. They enable farmers to lock in a price for their crops, utilities to manage their fuel cost, and manufacturers to hedge the price of industrial metals. They enable exporters to hedge foreign exchange risk and businesses of all types to lock in borrowing costs.

Certain types of derivatives did intensify the global economic crisis, which caused trillions of dollars in losses to our economy and to American families. We must never forget the toll inflicted on millions of individuals during that time. But we also must remember that commercial end-users were not the cause of that crisis, and should not bear the burdens of reforms designed to rein in systemic risk.

As a result, since I took office, I and my colleagues, Commissioners Giancarlo and Bowen, have all expressed our commitment to protecting commercial end-users from overly onerous regulatory burdens. And since that time, we have made significant progress.

So, today I’d like to discuss some of the recent actions we have taken – in areas such as recordkeeping requirements, margin requirements for uncleared swaps and in other areas. Then I’d like to discuss some of the issues on our agenda for the first part of 2016 that may be of interest to you.

Recent Actions

Simplifying Recordkeeping Requirements

So let me start with some recent actions. First, the Commission recently acted to help ease reporting burdens for commercial participants. In mid-December, we adopted significant changes to a rule that will reduce recordkeeping obligations for commercial end-users. This final rule, unanimously approved by the Commission, amends recordkeeping requirements set forth under Commission Regulation 1.35. First implemented in 1948, this regulation requires various types of market participants to keep written and oral records of their commodity interest and related cash or forward transactions. It is very important to our efforts to ensure our markets are strong, transparent, and operate free of fraud and manipulation.

Last month, we revised the rule so that members of exchanges and swap execution facilities not registered with the Commission— such as end-users — do not have to keep pre-trade communications or text messages. Further, we have simplified the requirements for keeping records of final transactions. The amended rule also states that commodity trading advisors do not have to record oral communications regarding their transactions.

The rule changes help strike an appropriate balance between the costs of recordkeeping and the benefits to market oversight. It will help ensure that businesses, farmers and ranchers that depend on the derivatives markets are able to continue using them effectively and efficiently. I know these changes are important to many of you. I want to thank all of you who commented on the proposed rule; your input was very helpful.